Roar writer Amaaya Nath on the future of day trading for young traders after the Gamestop bubble.
Initially, last month’s GameStop bubble seemed like a victory for young traders and the rising anti-establishment sentiment against Wall Street. Since the pandemic began there has been a surge of teens and students trading on the financial market with apps like Robinhood seeking to democratise trading and access to the stock market. The GameStop “short squeeze” initiated by Reddit users from the subreddit r/WallStreetBets gave power to young traders against large hedge funds showing that small retail traders can beat the institutional giants at their own game.
However, in the aftermath of this bubble and future regulatory implications, it is clear that the cards are still very much stacked against young traders as the stranglehold that large institutions have on Wall Street tightens.
After the initial rise in the price of GameStop stock, Nasdaq CEO Adena Friedman said on January 27 that the US exchange would halt trading in a stock if they matched it with social media chatter. This is problematic as there is no way to indicate the influence social media has on a person buying a stock. There is no clear connection between many individuals collectively liking a stock and “social media chatter” influencing this. If this regulation was to be imposed, it would be nearly impossible to enforce. An obvious double standard would arise, where investment managements can openly talk about stock predictions but individuals would not be able to openly talk about their stock portfolio.
The regulatory implications for the future that prevent events like this from occurring favour Wall Street, in part because of the almost incestuous relationship between regulatory bodies and Wall Street giants.
This incestuous relationship is especially prevalent when seen in tandem with the actions carried out by retail trading apps themselves. Apps like Robinhood disabled the buy button from their platforms, forcing the price of the stocks to go down and forcing many traders to be stuck in their positions. Many saw this as an obvious sign of market manipulation. It has been proven that while these apps seem to be empowering the young, their interests really lie in protecting the big corporations that support them. Robinhood in particular has faced a conflict of interest between its users and the cooperation that supports it like Citadel. Essentially, these apps are willing to go against their own core values if it means protecting their bottom line.
These apps benefit from people using their platform to trade, holding awesome power over users — including those who may not be as educated on how to handle their position on the market. Additionally, the gamified trading present in these apps allows largely inexperienced traders to gamble their savings and take on risky positions. Most notably, Robinhood faced a lawsuit from the parents of Alex Kearns, a teenager who committed suicide after attaining large losses on Robinhood on accident.
However, while it is the user’s responsibility to be educated on the positions that take, it is the lack of safety nets that have made these apps a seemingly “get rich quick scheme” for students rather than a platform for long-term investment that it is meant to be. Apps like Robinhood are ultimately not on the same side as the day traders. Instead, they are looking to straddle themselves between Wall Street and the little guy to profit themselves.
So what does this mean for the future? GameStop showed us that younger traders have an edge on the institutions to react to social media trends but should take this victory with a grain of salt. Wall Street hasn’t changed, and at the end of the day, these apps are businesses that will go out of their way to protect their profits.